Kinship-ties and entrepreneurship in Western Africa

Abstract – Previous research has shown that in many low and middle income countries micro and
small entrepreneurs achieve relative high marginal returns to capital but show only very low reinvestment
rates. Existing research is rather inconclusive about the possible causes. We explore
whether forced solidarity, i.e. abusive demands by the family and kin hinder entrepreneurs to save
and to invest. We start from a relatively simple theoretical model in which households consume
and pursue different income generating activities, mainly the production of goods and services and
the engagement in dependent wage work outside the household. Value added of the household
business is subject to a solidarity tax imposed by the household’s wider family and kin-group. In
this model a higher solidarity tax leads to a reallocation of productive resources away from
household production to other income generating activities and leisure. We use an original data set
of West-African migrant entrepreneurs to see whether the empirical observation is consistent with
the predictions of the model. We find some evidence that family and kinship structures within the
city enhance labour effort and the use of capital. However, closeness to the area of origin seem to
have adverse effects on both.